Many people worry that a bankruptcy will be a permanent or long-term setback. The reality is that personal bankruptcy provides a financial fresh start by eliminating debts that you may have struggled for years to manage and repay. Once your bankruptcy is completed the process allows you to move on with your life, financially and otherwise, unhindered by debt.
Whether you are considering filing bankruptcy, already underway with filing, or just finishing bankruptcy – we know you have questions about “life after bankruptcy”. We’ve outlined information about what happens once bankruptcy is over, and some tips for success after bankruptcy:
Bankruptcy Discharge Process
Receiving a discharge from bankruptcy means that you have completed the duties required in your bankruptcy and no longer bear any liability for the debts you owed prior to filing. Your Licensed Insolvency Trustee will also be discharged from the bankruptcy process once all of their duties are fulfilled. These include:
- Ensuring applicable income tax returns have been properly filed and assessed
- Reviewing all creditor claims
- Compiling a final accounting of all moneys in the bankruptcy estate
- Distributing money (called dividends) to eligible creditors
The “final accounting” in a bankruptcy filing is called a Statement of Receipts and Disbursements. Before any money is distributed, the Statement is reviewed and approved by the Office of the Superintendent of Bankruptcy – this helps to ensure full transparency.
It can take some time for your bankruptcy estate to be officially closed – but don’t worry, if you have received your bankruptcy discharge your role in the bankruptcy is done!
Key Bankruptcy Documents to Keep
You can expect to receive several sets of documents throughout your bankruptcy, some key bankruptcy documents to keep for your records are:
Notice of Bankruptcy: This is the first document you will receive as part of your bankruptcy. In addition to noting the official date of your bankruptcy it will also contain a list of your creditors.
Discharge Certificate (or Order): Starting a bankruptcy means that you no longer need to make payments to your creditors, and being discharged (released) from bankruptcy means that you are officially free from the responsibility of repaying your debt. Your Discharge Certificate (or Order) is the document that declares you have achieved a financial fresh start!
Statement of Receipts and Disbursements: This is normally the last document your Trustee will send you. It will contain information about key administrative tasks completed and a final list of creditors that were dealt with under your bankruptcy.
Be sure to update your contact information with your Licensed Insolvency Trustee if your mailing or email address changes before you receive your Statement of Receipts and Disbursements.
What if I lose my bankruptcy documents?
If you have misplaced a document related to your bankruptcy there are a few ways you can get a copy for your records:
- Contact your Trustee directly
- Contact the Office of the Superintendent of Bankruptcy
Credit History and Score after Bankruptcy
Bankruptcy is not a permanent mark on your credit history, and your credit score can change dramatically in just two to three years after your discharge. Most people are discharged from bankruptcy after 9 months, and the bankruptcy will show on their credit history report for 6 years after that date. You do not need to wait until the 6-year window has passed to start building and improving your credit history and score.
Following these credit rebuilding steps is crucial in order to build your credit score, and ultimately get new credit after bankruptcy:
- Get a copy of both your credit reports and check them for errors
- If you find errors take the time to get them fixed (more on that below)
- Pay ALL your bills on time, every time
- Even small bills like cellphones count
- Establish new credit and use it well
- Secured credit cards that report to credit bureaus are a good place to start. Some popular choices include options through lenders like Home Trust, Capital One, People’s Trust
The Office of the Superintendent of Bankruptcy sends information about discharged (completed) bankruptcies to credit bureaus weekly, so these credit histories are supposed to be updated automatically, but it is common to find errors on your credit history following a bankruptcy. One of the most common errors is to find that a creditor is reporting you still owe them money, even though the debt was discharged (released) in the bankruptcy.
How can I fix errors on my credit reports?
It can feel very frustrating to find mistakes or errors on your credit history reports when you’re ready to move on with your life. The good news is that you can take control of the situation and get them fixed!
- Use the Credit Investigation Request Forms here to request corrections from both Equifax and TransUnion.
- You will need to fill out the form, attach relevant documents if possible and mail the form to the address at the top of the report where you found the error.
Because Licensed Insolvency Trustee are not lenders, we unfortunately cannot update your credit records in any capacity.
Getting Credit After Bankruptcy
When establishing new credit it’s important to understand all the terms and conditions of borrowing. If you don’t yet qualify for ‘best rates’ ask yourself if the item you may be purchasing on credit is something you really need, or if it can wait until it will cost you less to borrow.
Most people keep all their assets throughout a bankruptcy and generally speaking you are free to sell, dispose of or transfer assets you may have retained – there is also no legal reason why you would be unable to acquire new assets such as a home or vehicle. Although many people will wait until their bankruptcy is complete to take on new credit, this isn’t always the case.
How long after bankruptcy can I get a mortgage?
Mainstream mortgage lenders may be able to grant you a new mortgage if it has been two years since you were discharged from bankruptcy. Subprime lenders may grant mortgages within less than two years.
Renewing your mortgage during bankruptcy is normally approved, provided that your mortgage payments are up to date and your mortgage account in good standing.
How long after bankruptcy can I get a car loan?
Standard lenders may grant you a vehicle loan or lease within a year or two of your discharge, there are also specialized lenders who will even give vehicle financing before discharge.
How long after bankruptcy can I get a credit card?
It isn’t uncommon for people to set up a secured card while they are still in the bankruptcy process. Standard unsecured credit cards at best rates may be available within one year of your discharge.
Remember that your credit history and score are not the only factors lenders look at – your income and savings can also be key!
Filing Income Tax Returns
In a bankruptcy your Licensed Insolvency Trustee will file two income tax returns for the year your bankruptcy began, these are called pre- and post-bankruptcy income tax returns. If you had outstanding returns at the start of your bankruptcy these may also be caught up and filed as part of your bankruptcy.
You will need to file your tax returns as usual in the years after your bankruptcy filing and pay any balances due. Any balance owing to the Canada Revenue Agency that may arise after the date of your bankruptcy will be your responsibility to pay.
If tax filings and bookkeeping remain a challenge you may wish to seek assistance from a reputable bookkeeper or accountant for assistance to ensure no unpleasant tax debt surprises in the future.
If you’re researching bankruptcy it’s important to remember that this process provides a fresh start in a relatively short amount of time, for most Canadians it’s only 9 months until they are released from bankruptcy – many people spend more time contemplating (or postponing) filing bankruptcy than that.
What would your life look like without debt? Find out about bankruptcy and bankruptcy alternatives – book your confidential free debt consultation today.